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Calculator Answers

No Tax on Overtime Calculator

Blake Boege
Written by Blake Boege · Founder, Calculator Answers

A no tax on overtime calculator is a specialized payroll utility designed to estimate paycheck earnings under tax policies that exempt overtime compensation from federal, state, or local income taxes. The calculator models scenarios where hourly workers pay standard taxes on regular hours but receive their overtime hours completely tax-free. It compares net pay under standard tax rules against net pay under the proposed tax exemption policy. Hourly employees and policymakers use this tool to calculate changes in take-home pay and evaluate the economic impact of tax-exempt overtime policies.

Estimate your federal tax savings from the 2025-2028 overtime deduction. Up to $12,500 (single) or $25,000 (married) in qualified overtime is exempt from federal income tax.

Quick Answer

Estimate your take-home pay if overtime hours were exempt from income taxes. Enter your hourly wage, regular hours, overtime hours, and tax filing status to compare payouts.

$

e.g. 25

e.g. 200

$

Used to estimate your marginal tax bracket and phase-out limit. · e.g. 70000

Tax Savings Estimate

Federal Income Tax Savings

$550

At an est. 22% marginal rate

Deductible OT Premium$2,500
FICA still owed on premium-$191
Net savings after FICA$359

Texas has no state income tax, so there are no state taxes to save.

Overtime Pay Breakdown

Total overtime pay$7,500
Regular portion (Taxable)$5,000
Premium portion (Deductible)$2,500
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How it works

What is the 'No Tax on Overtime' law?

The 'No Tax on Overtime' provision is part of federal legislation that allows workers to deduct a portion of their overtime pay from their federal income taxes. Signed into law as part of the One Big Beautiful Bill Act in July 2025, the deduction applies to tax years 2025 through 2028.

  • It's a DEDUCTION, not a tax credit (reduces taxable income, not tax owed directly)
  • The deduction applies to the OVERTIME PREMIUM only — the 'half' in time-and-a-half, not the full overtime rate
  • Maximum deduction: $12,500 for single filers, $25,000 for married filing jointly
  • Phase-out (2026): begins at $150,000 MAGI single, $300,000 married filing jointly, reducing the deduction by $100 per whole $1,000 above it (26 U.S.C. 225(b)(2)(A))
  • FICA taxes (Social Security 6.2% + Medicare 1.45%) still apply to all overtime pay

How the overtime deduction works

STEP 1: Identify your overtime premium.
Federal law defines overtime as hours worked beyond 40 in a workweek, paid at 1.5x the regular rate. The 'premium' is the extra 0.5x. For example, if your regular rate is $20/hour and overtime is $30/hour, your premium is $10/hour.

STEP 2: Apply caps and phase-outs.
The maximum deductible is $12,500 single / $25,000 married. Above $150K MAGI single ($300K married) for 2026, the deduction tapers by $100 per whole $1,000 of MAGI. It reaches zero at $275K single and $550K married when the full cap applies, and sooner for anyone whose qualified overtime is less than the cap.

STEP 3: Calculate tax savings.
The deduction reduces your taxable income. Your savings = deduction amount × your marginal federal tax rate.

STEP 4: Account for what's NOT exempt.
FICA (7.65%) still applies to the full overtime pay. State income tax may still apply. The base/regular portion of overtime is still federally taxable.

Who qualifies?

Non-exempt employees who receive legal overtime pay under the Fair Labor Standards Act (FLSA) qualify, provided they are under the income limits. Exempt salaried employees, independent contractors, and those earning above the phase-out thresholds do not qualify. Tips have a separate provision in the same legislation.

Common questions about the deduction

Will it be extended past 2028?
The current law expires after tax year 2028. Plan around the 2025-2028 window; don't assume permanence.

Do I need to itemize to claim it?
No. The overtime deduction is an 'above-the-line' deduction, meaning you can claim it whether you take the standard deduction or itemize.

Does this apply to double-time?
Double-time pay (2x rate) means the premium is the FULL hourly rate — the 'extra' portion is bigger, which can mean a larger deduction.

Will this reduce my Social Security benefits?
No. Social Security benefits are calculated from total earnings reported to the SSA, which includes overtime. The income tax deduction doesn't affect Social Security earning records or benefits.

Disclaimer

This calculator estimates federal tax savings based on the 2025-2028 overtime deduction. Actual tax results depend on your specific situation. This is not tax advice — consult a qualified tax professional for your filing.

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Frequently asked questions

The 2025-2028 federal law allows workers to deduct their overtime premium (the 'half' in time-and-a-half) from federal taxable income. Max deduction is $12,500 (single) or $25,000 (married). You still pay FICA (7.65%) on overtime, and state taxes may still apply. The deduction reduces taxable income — actual savings depend on your marginal tax bracket.

Savings = (overtime premium amount, capped at limit) × your marginal federal tax rate. For 2026, someone with $5,000 in deductible overtime premium in the 22% bracket saves ~$1,100 federally. Use the calculator above for your specific numbers.

The premium is the extra portion of overtime pay above your regular rate. For time-and-a-half overtime: if you earn $20/hour, your OT rate is $30/hour. The premium is $10/hour ($30 − $20). Only this premium portion is deductible — the regular portion of overtime ($20/hour) is still taxable.

No. It eliminates only the federal INCOME tax on the premium portion. You still pay: (1) Social Security and Medicare taxes (7.65% total) on all overtime, (2) federal income tax on the regular portion of overtime, (3) state income tax (varies by state).

Non-exempt employees who receive legal overtime pay under FLSA. Income limits apply for the 2026 tax year: the full deduction runs up to $150K MAGI (single) or $300K (married), then falls by $100 for every whole $1,000 above that. At the full cap it reaches zero at $275K single and $550K married, not at $200K/$400K. At $200K a single filer still has $7,500 of deduction left. Exempt salaried employees, contractors, and people earning above the phase-out don't qualify.

Yes — claim it on your federal tax return. The IRS has updated tax forms to include this deduction. If you use tax software (TurboTax, H&R Block, etc.), it will prompt you for the overtime amount. You may need to track your overtime hours and pay yourself if your W-2 doesn't break them out separately.

The current law applies to tax years 2025-2028 (signed into law July 2025). Whether Congress extends it depends on future legislation. Plan around this window without assuming permanence.

It depends. States that base taxes on federal AGI may pass through the federal deduction automatically. Others have their own overtime rules. Texas, Florida, Nevada, and other states without income tax don't tax overtime. California, New York, and other high-tax states may still tax overtime fully. Check with your state's tax department.

Yes. Your full overtime pay (regular + premium) still appears on your W-2 in Box 1 (wages). The deduction is claimed separately on your tax return. Your employer or payroll system may add a code to identify the qualifying overtime amount.

The calculator uses the 2025-2028 federal rules as written. It estimates your savings based on the inputs you provide. Actual savings depend on your final taxable income, deductions, and tax bracket. State tax treatment varies and is noted but not calculated precisely. Use the calculator for planning estimates — for tax filing, consult a tax professional or current tax software.